The US-Venezuela Relationship as Seen Through the Price of an Oil-Linked Bond

The increased pressure from the United States on Venezuelan President Nicolas Maduro and his government has brought to light the defaulted debts of Venezuela, including those of Petroleos de Venezuela (PDVSA), the state-owned oil company. Venezuela defaulted in its debts in 2017, but PDVSA paid holders of a bond that matures in 2020. The swap was made in 2016, replacing debt due the next year. The bond is backed by a pledge of 50% of Citgo Holding, through PDV Holding's 100%-owned subsidiary. Payments stopped in October 2019 after the National Assembly, led by the opposition, declared the bond contract to be illegal. In 2016, Canadian miner Crystallex International won an arbitration award of $1.4 billion against Venezuela for the expropriation by Hugo Chavez's government of a project. Crystallex convinced a U.S. Court that PDV Holding is the alter-ego of Venezuela. The court then found the company responsible for Venezuela's debt. This process led to an auction last month of PDV Holding's shares in favor of an Elliott Investment Management affiliate, who had set aside $2.1 billion for the payment and extinguishment of PDVSA 2020 bonds. Elliott's Amber Energy won't be able to complete the sale until U.S. Treasury approves it.

In mid-2020, the price of Venezuela's bonds fell to as little as 10 cents per dollar due to the broader debt crisis in the country and U.S. sanction. Investor interest was revived by court-related developments. Most importantly, the first confirmation in 2020 that debts were enforceable under New York Law.

In October 2023, the removal of most U.S. Sanctions acted as a new catalyst. Prices rose above 80 cents per dollar and have been there ever since. In September, the escalating U.S. pressure on the Maduro government pushed the bond price up to parity for the first. On Thursday, the bond closed at $100.25 on the dollar.

(source: Reuters)